Do predictive scores violate your privacy?

They size you up, decide what offers you receive -- but you can't see yours

Your
credit score is not the only number card issuers and other financial marketers
use to size you up.

Marketers
also have access to hundreds of alternative scores that rely on sensitive
personal details -- such as what you tweet, how much you make and where you stop
for your morning coffee -- to predict how you will behave. Want to see yours, as you can a credit score? Too bad. They're secret.

Some
companies use these predictive scores to verify your identity and root out
fraud. Others use them for marketing, to determine the ads and prices you see
online.

Proponents
say crunching such data benefits consumers because financial marketers can use
the information to customize offers according to a shopper's needs.

"You
are getting offers that relate to you," says Patrick Dolan, executive vice
president at the Interactive Advertising Bureau. "That's what's great
about advertising. It gives you information about things you may want."

For
example, if you are a frequent traveler, you may see an offer for a hotel
rewards card from the same chain you stayed with on your last trip.

Marketers
may even offer you substantial discounts on products you were already
considering buying online, he says.

However,
critics say the process of generating alternative predictive scores is creating
an unregulated parallel universe to traditional credit scores. Both types of scores are used
to determine the offers consumers get and the prices they pay. But while consumers may view traditional credit reports and have the right under federal law to demand corrections, predictive scores are private. Consumers cannot see their predictive scores or challenge any flaws.

Why predictive scores are created
The
companies that produce predictive scores do not publicize the scores or what
goes into them. But consumer advocates are digging deeper to learn more.

The
nonprofit group the World Privacy Forum published a 90-page
report in April 2014 examining consumer scores used for various purposes.
The group confirmed there are at least hundreds of such scores in existence -- and
likely many more.

According
to Pam Dixon, the organization's executive director and a co-author of the
report, many predictive, alternative scores use a much larger amount of data than a
typical credit score, which is based solely on the information in your credit
report.

"The
credit report has about 30 factors. A lot of scores have in excess of 1,500
factors," says Dixon.

According
to the report, data might come from:

Your
transaction history. "People need to understand, at this point in the
history of predictive analytics, almost anything you purchase with a credit or
debit card can be used for scoring purposes," says Dixon. If you pay with
cash, but also use a loyalty card, that information could also wind up in a score.

Posts
you make public on social media.

Your
payday loan history. If you take out a payday loan, the payday lender may
disclose your name to a third party, says Dixon.

Public
records information, such as your marriage license, birth certificate, property
records and voting history.

Your
online browsing history and the time you spend on certain websites.

Behavioral
analysts typically add all these factors together and use the multiple data
points to calculate a score that predicts how you will behave.

It's
going to provide you with offers that appeal to you, that are relevant to
you.

-- Patrick Dolan
Interactive Advertising Bureau

"It
reveals a lot about you," says Dixon.
"I don't think people understand just how revealing our life patterns
are."

Other
factors that may be part of this predictive analysis include your ZIP code,
your level of education, your income and the kind of dwelling you live in. "It
becomes really, really easy for people to make a lot of predictions and models based
on that data," Dixon says.

Predictions made about you
Such
predictions include:

How
wealthy you are.

Your estimated "lifetime
value." This includes how much money they are likely to earn from you
over time, and how loyal you will be.

"It's
going to provide you with offers that appeal to you, that are relevant to
you," says Dolan. "The way I look at it, anything that's not targeted
to you is spam."

Privacy experts
are not convinced the customized offers are universally beneficial, or worth
the privacy trade-off. "When
you are on the Internet, you are being followed around and tracked by dozens,
if not hundreds of companies," says Ed Mierzwinski, consumer program
director at the Public Interest Research Group.

Some
companies use your real-time browsing history to generate predictive scores. Essentially
"they are creating financial profiles that are parallel to your credit
report," says Mierzwinski.

If a
lender uses alternative scores to identify potential borrowers, "You are
going to see a different credit card offer than I am if your score is different
from my score," he says.

Not
for public consumption
Curious
about your alternative scores and how you stack up? You are out of luck.

Unlike
traditional credit scores, predictive scores used for marketing purposes, rather
than for determining borrower eligibility, do not fall within the scope of the
Fair Credit Reporting Act. Consumer reporting companies regulated by the FCRA must provide you with a free
annual copy of your consumer report if you request it. Or, they must provide
you with a free copy if the information in the report was used against you. The law also provides a mechanism for consumers to challenge inaccurate data held by the companies.

Companies that generate alternative scores do not have to disclose what
they used to calculate your score. They do not have to reveal what
your score is -- or even that it exists.

You
don't have the right to stop them from sharing it. You
don't have the real right to look at it. You don't have the right to change it
and the law does not limit its use.

-- Ed Mierzwinski
Public Interest Research Group

Consumer
advocates criticize digital marketers and data brokers -- companies that
collect and sell personal and financial information -- for their lack of transparency. "There
are many, if not hundreds of consumer reporting companies that try to stay out
of the limelight," says Persis Yu, a staff attorney at the National
Consumer Law Center.

Some
data brokers not regulated by the FCRA allow you to buy your
information or request it for free in exchange for some of your personal
information. But even that can be difficult.

Employees
at the National Consumer Law Center, for example, tried pulling their
information from five different data brokers -- Acxiom, eBureau, Intelius,
Spokeo and ID Analytics -- for a March 2014 report on big-data accuracy
and found the process to be challenging. The
companies that do provide you with the information they are collecting often make
you jump through hoops to get it, Yu says. Or they only show you a selection of
the information they have pulled.

"Even
the most sophisticated consumers probably aren't going to be able to get at
that data," says Yu.

Many other alternative scores offer no mechanism to request the
information that goes into the scores, or to request corrections of inaccurate
information.

Your rights are limited in many ways, Mierzwinski says. "You
don't have the right to stop them from sharing it," he says. "You
don't have the real right to look at it. You don't have the right to change it
and the law does not limit its use."

Other
controversies
Consumer
advocates also worry consumers could be unfairly discriminated against or
persuaded to use products not in their financial interest. For example, if you
have previously used a payday lender, you may see offers for similar financial
products with high fees and APRs, rather than offers with attractive rates and
rewards. "I
think industry needs to do a lot more to make sure there aren't any predators
out there going after people with low or high scores," says Dixon.

Some
consumer advocates also worry that the information used to score consumers may not
be very accurate. "One
of the big problems with these scoring products is they're deriving scores from
data that is somewhat suspect to begin with," says Paul Stephens, director
of policy and advocacy at Privacy Rights Clearinghouse.

Data
brokers, for example, may have incomplete or inaccurate information. "I
checked myself and found that the information the data brokers have on me is so
incredibly wrong that it would put me in a group that is not descriptive at all
of where I should be," Stephens says.

Federal
regulators are starting to look at alternative scores more closely. The Federal Trade
Commission (FTC)
held a workshop
on alternative scoring in March and asked consumer advocates and industry
analysts to comment on the practice.

"Privacy
is incredibly important. It's important to marketers and important to consumers,"
he says. Marketers
aren't interested in painting a bull's-eye on any individual, Dolan says.
"A lot of this is machines talking to machines and it's not what you think
it is," he says. "I would say, in my own experience, working in this
world, trying to decipher all this data and trying to pinpoint any one particular
person, there's no value in it."

That doesn't satisfy consumer advocates who worry consumers' privacy is being compromised by the data
collection. "It's really important to understand the patterns we're all leaving behind," says Dixon. "Predictive analytics and predictive scoring are really the new future of data," she says.

Published: June 27, 2014

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